Supplement vs Supplant: OTT business models at the TV

When it comes to delivering Over the Top Video to the television, there are two models that encompass virtually every approach. Those that outright replace (supplant) paytv service and those that provide additional content to augment (supplement) paytv.

A good example of these two models came to me in a recent discussion. This particular reporter had just come from a separate interview where he’d been told that Sezmi’s greatest competition is HULU and Netflix. Sorry, but I couldn’t disagree more.

Sezmi is attempting to replace pay television services. The others are not. If we look at some of the winners and the failures of the recent OTT market, there is evidence which model will dominate in the short term.

NOT SO SUBTLE HINT: We summed it up three years ago when we published “The Little Book of Broadband Video.” Maxim #8: Broadband Video Will First Supplement Then Supplant Traditional PayTV Services.

First, let’s look at some examples of the augmentation model:
Netflix. By far the poster child of OTT services. We’ve been saying for some time that Netflix does not compete against Comcast, instead it competes with HBO. Now they have over 15 million subscribers with 60% using the Watch Instantly service. Late last year, Netflix surpassed Blockbuster’s revenue and subscriber growth is impressive.

HULU. Having been limited to the PC, HULU Plus is extending the viewing experience to the television via a host of devices. We’ve been playing with the Sony PS3 beta and the XBOX will be coming early next year. Between just these two devices, the number of available subscribers is northward of 10 million devices able to carry the service. Long-term, we question what a subscription model means for HULU, but for now they have momentum and demand – at least for the free service.

Zillion TV. Zillion TV made a splash with the promise of an advertising supported model that made content free. Yes, Zillion also had pay models, but the service didn’t have the traction. Their most notable investor, Qwest, did not launch the service. When I reached out last week, the phones weren’t working. I understand the assets are up for sale. What, you thought I’d say everything is rosy in OTT?

Now consider the replacement models:Move Networks. The early leader in high quality streaming for sites like ABC.com and Fox.com, the company moved to a model of enabling paytv models for telcos, thus competing with paytv. The company recently scaled all operations to a virtual standstill as the investors seek to sell the remaining assets.

Sky Angel. Sky Angel is a niche service provider that focuses on “Faith and Family Television.” Using a NeuLion set top, Sky Angel quietly launched mainstream networks for delivery directly over the internet including Discovery Channel, Fox News, and others. They’ve recently added a web model to deliver to the PC. The company quietly plugs away at adding subscribers and content, but their very nature will limit their model to niche market. Overall, though, I do consider this one of the only successful replacement stories – limited as that success may be.

Sezmi. Sezmi’s Select Package is now available in 15 cities across the country. However, this service has a couple challenges. Limited content, upfront fees, limitation to urban areas due to the antenna, etc. To be successful, though, they must tap into the “cord cutter” market or those that are looking to downgrade existing service. Cord cutters, seemingly covered as heavily as BP, have proven to be as elusive as bigfoot. Our latest studies show that less than 8% of consumers have any interest in totally cutting the cord. Further, I’m hearing rumors from several sources that Sezmi is actively seeking a buyer.